SP Angel . Morning View . Wednesday 04 08 21
Good earnings results outweigh Delta variant concerns
Arkle Resources* (LON:ARK) – Latest drilling results from the Mine River gold exploration project
BHP (LON:BHP) - BHP expects demand for nickel in battery demand to rise by 500%
Cora Gold (LON:CORA) – Drilling update at Sanankoro
Kodal Minerals* (LON:KOD) – Bougouni licence application advances to final stage of the approval process
Power Metal Resources* (LON:POW) – Phase-1 work programme complete at Tati Project
Vale (NYSE:VALE) – Vale Nickel workers end two-month strike at Sudbury
IGTV: China fearing failure in metals pricing tactic: https://youtu.be/RK4HQPrs60s
China – suspends flights and trains into Wuhan
China is to test all 11m residents in Wuhan for Covid.
China – Composite PMI picked up in July from a 14-month low in the previous month predominantly driven by a steep increase in services activity.
China Manufacturing PMI – 50.4 in July as manufacturing output expanded only slightly last month.
The PMI number is lower than for June due to flooding, unusually hot weather and power rationing and summer shutdowns for maintenance in some key regions.
“As the July surveys of Caixin China PMIs were conducted after the epidemic in Guangdong province was brought under control, and before Covid-19 resurged in Jiangsu province, the services sector expanded rapidly, though the manufacturing sector was slightly weaker… The resurgence of the epidemic in some parts of China at the end of July is expected to hurt August's PMI readings,” the report said.
“China's official second-quarter economic figures were in line with expectations, but the Caixin China PMIs in July suggest that the economic recovery is not on sure footing.”
Markit/Caixin Services PMI: 54.9 v 50.3 in June and 50.5 est.
Markit/Caixin Composite PMI: 53.1 v 50.6 in June
Heavy duty truck sales fell 48% yoy and 54% mom in July
China housing the cost of housing, education and healthcare has caused many Chinese couples to delay or cancel the idea of having children unbalancing China’s demographic.
Authorities imposing restrictions on property buying to take the heat out rising prices which have risen by 2.1% yoy this year vs a rise of 1.7% a year ago.
Cities will continue to build new housing to encourage the ongoing transition from rural areas into new urban clusters but with more ‘affordable’ housing and with potential limits on prices for new buyers. We suspect China may need to offer further incentives to enable poorer buyers to acquire property and encourage their ‘nesting instinct’.
New government policy is to orientate the economy towards higher technology areas such as EVs and metallurgical industries where China has a commanding position.
China refines most of the world’s rare earths, lithium hydroxide, graphite and other components for Li-ion battery manufacturer.
Eg if you are making Li-ion batteries your refined raw materials are currently coming from China.
The innovation coming out of CATL and some other Chinese metallurgical businesses is rivalling Japanese, US and South Korean manufacturing and may take a commanding lead
The decline in birthrate which inspired President Xi’s directive on reducing the gap between rich and poor is causing the authorities to limit property price rises.
China - Authorities to continue to stabilise commodity prices according to central government statement
Chinese manufacturers are set to endure higher raw material prices as efforts by officials to dampen costs fail to materialise.
We suspect the authorities will move to sell SRB stock into price spikes rather than risk trying to lower prices across the board.
Sales by China’s National Food and Strategic Reserves Administration of stockpiled key metals have so far had just a temporary effect.
China may also allow the Yuan to rise to offset some of the impact of higher raw materials prices.
The authorities are most concerned over the impact of raw material inflation on Smaller and Medium sized Enterprises where margins are generally lower.
SRB auctions alongside announcements of investigations into commodity price-setters and speculators in July marked Beijing’s first real but careful intervention in commodity markets.
Prices of materials critical to the Chinese manufacturing economy, specifically coal, Shanghai aluminium and zinc are now back to multi-year highs despite the intervention.
Beijing’s caps on steel output to reduce carbon emissions have also helped to reduce iron ore prices by around 20% though measures to reduce speculation in iron ore futures in China has had greater impact.
We see the only truly effective measure to reduce prices is a slowdown in demand from Chinese manufacturing.
While new Lockdowns across China may reduce some demand we also suspect Stimulus to maintain economic growth and to build much needed housing will continue to raise demand for metals.
Closure of coal fired power plants to be funded by major City funds and banks
A new public-private partnership is to fund the closure of ageing fossil fuel plants across Asia.
These plants are seen as the world’s worst source of carbon emissions and their closure will make a real difference.
The proposal is for Blackrock Real Assets, Prudential, HSBC and Citi in partnership with the Asian Development Bank to buy out the power plants and accelerate their closure within a 15-year period.
The group plans to present a model of their plan in November, eg in time for the COP26 in Glasgow.
While many investors don’t want banks to finance coal fired power generation, this plan offers a practical and tangible way of closing massive carbon dioxide emissions far faster than might normally be done if left to local utilities or private companies.
We expect the banks will also profit from the financing of replacement, greener, energy sources, eg hydro, wind and solar farms – but who cares, if that’s what it takes.
Dow Jones Industrials +0.80% at 35,116
Nikkei 225 -0.21% at 27,584
HK Hang Seng +1.12% at 26,488
Shanghai Composite -0.82% at 3,476
Economics
US – Robust growth in new factory orders reported in June in line with strong manufacturing PMI data seen lately.
The report suggests strong business spending on equipment and sustained growth in the sector even as growth momentum is shifting away from goods to services, Reuters writes.
Factory Orders (%mom): 1.5 v 2.3 (revised from 1.7) and 1.0 est.
Stronger than expected corporate earnings from US companies in recent weeks see analysts revising their Q2 estimates higher.
Earnings are now expected to have climbed about 90% in the second quarter versus analysts' forecasts of 65.4% at the start of July, according to IBES data from Refinitiv, with results in so far from roughly 300 of the S&P 500 companies as of Monday morning, Reuters writes.
Brazil – Proposed tax reform increases a levy charged on mining companies known as CFEM to 5.5% from 4%, according to lawmakers.
Spain
Markit Services PMI: 61.9 v 62.5 in June and 63.2 est.
Markit Composite PMI: 61.2 v 62.4 in June and 62.3 est.
Italy
Markit Services PMI: 58.0 v 56.7 in June and 58.7 est.
Markit Composite PMI: 58.6 v 58.3 in June and 59.5 est.
Eurozone – Final PMI numbers confirmed strong growth momentum in the single currency zone with the Composite Index up at the highest level in just over 15 years.
Steep manufacturing growth is being complemented by an accelerated expansion of services activity.
A downward revision from first preliminary estimate is a reflection of an adjustment in services with worries over the Delta variant becoming more widespread raising concerns over potential new virus restrictions.
Markit Composite PMI: 60.2 (final) v 59.5 in June and 60.6 (preliminary)
The number of people flying Ryanair doubled to 9.3m in July on the previous month following the introduction of digital passes and travel restrictions eased in Europe.
New York City will be the first US city to require proof of vaccination for a number of indoor activities including dining, gyms and entertainment, Bill ed Blasio, the City’s mayor, said yesterday.
“This will encourage a lot more vaccination – we’ve seen it already,” de Blasio said.
New restrictions are planned to be introduced from September 13.
Currencies
US$1.1878/eur vs 1.8760/eur yesterday. Yen 109.08/$ vs 109.11/$. SAr 14.266/$ vs 14.427/$. $1.394/gbp vs $1.390/gbp. 0.741/aud vs 0.740/aud. CNY 6.460/$ vs 6.466/$.
Commodity News
Precious metals:
Gold US$1,814/oz vs US$1,810/oz yesterday
Gold ETFs 100.5moz vs US$100.6moz yesterday
Platinum (AIM:ZERO) US$1,052/oz vs US$1,054/oz yesterday
Palladium US$2,666/oz vs US$2,678/oz yesterday
Silver US$25.69/oz vs US$25.28/oz yesterday
Base metals:
Copper US$ 9,594/t vs US$9,626/t yesterday
Aluminium US$ 2,594/t vs US$2,601/t yesterday
Nickel US$ 19,370/t vs US$19,205/t yesterday
Zinc US$ 2,977/t vs US$2,987/t yesterday
Lead US$ 2,389/t vs US$2,372/t yesterday
Tin US$ 34,600/t vs US$34,545/t yesterday
Energy:
Oil US$72.4/bbl vs US$72.7/bbl yesterday –
Oil settled lower yesterday, as concerns about rising cases of the Delta coronavirus variant outweighed expectations for another weekly draw in US inventories that had boosted prices early
Concerns over the spread of Delta variant in the US and China, the top oil consumers, weighed on prices, with both benchmarks falling more than 3% at one point
In China, the spread of the variant from the coast to inland cities has prompted authorities to impose strict measures to bring the outbreak under control
Expectations of a return of Iranian crude to the markets also pressured prices
Iran and six powers have been in talks since April to revive a nuclear pact that could release its oil exports
Iran's new president, Ebrahim Raisi, said yesterday that his government would take steps to lift "tyrannical" sanctions imposed by the US on its energy and banking sectors
The sixth round of indirect talks between Tehran and Washington adjourned on 20 June, two days after Raisi was elected president
Parties involved in the negotiations have yet to announce when the talks will resume
A Reuters poll showed US crude and product inventories likely declined last week, with both distillates and gasoline stockpiles predicted to have fallen for a third straight week
Elsewhere, equities saw a welcome boost with BP, ConocoPhillips (NYSE:COP), and Continental Resources all reported strong second-quarter earnings this week
Natural Gas US$4.072/mmbtu vs US$3.980/mmbtu yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$176.7/t vs US$178.0/t
Chinese steel rebar 25mm US$814.5/t vs US$815.9/t
Thermal coal (1st year forward cif ARA) US$95.5/t vs US$96.0/t
Coking coal swap Australia FOB US$198.0/t vs US$204.0/t
China Illmenite Concentrate TiO2 US$359.89/kg vs US$359.6/t
Other:
Cobalt LME 3m US$52,500/t vs US$52,500/t
NdPr Rare Earth Oxide (China) US$97,906/t vs US$97,043/t
Lithium carbonate 99% (China) US$13,467/t vs US$13,455/t - Steel industry under fire as investors call for more action to reach climate goals
The Institutional Investors Group on Climate Change (IGCC), which represents fund managers with $55tn in assets, has called on steelmakers to take urgent action in reducing their carbon emissions.
Steelmaking production accounts for 9% of global emissions, with the industry being called to reduce its output by 29% by 2030 to meet the Paris Agreement targets.
For net zero to be accomplished by 2050, steelmaking emissions must fall by 91%.
The IGCC called for reports by the end of 2022 from the industry on the technology it planned to implement to achieve such goals. Specifically, carbon capture and storage as well as hydrogen-based production plants.
A report by the International Energy Agency in May found that ‘existing technology can deliver 85% of emissions reductions needed by 2030’.
Both ArcelorMittal and Salzgitter already have plans to utilise hydrogen-based projects to help lower emissions.
Lithium Spodumene Li2O 5%min CIF US$810/t vs US$800/t
Ferro-Manganese European Mn78% min US$1,776/t vs US$1,799/t
China Tungsten APT 88.5% FOB US$305/t vs US$305/t
China Graphite Flake -194 FOB US$515/t vs US$515/t
Europe Vanadium Pentoxide 98% 9.8/lb vs US$9.8/lb
Europe Ferro-Vanadium 80% 40.75/kg vs US$40.75/kg
Spot CO2 Emissions EUA Price US$57.9/t vs US$57.9/kg
Battery News
Ørsted complete largest onshore wind project to date
Ørsted has completed the construction of the 367MW Western Trail Wind Farm, in Texas, their largest onshore wind project to date.
The completion of the Western Trail Wind Farm brings Ørsted’s total onshore capacity to over 2.8 GW of wind, solar, and battery storage in operation.
Nissan battery partner to spend over $450m on new production plant
Nissan Motor Co.’s Chinese battery partner Envision AESC has announced that it will spend $460m to build a new battery manufacturing plant in Japan, just north of Tokyo.
Nissan and AESC will jointly manage the plant and are targeting an annual production capacity of 6GWh in 2023.
In a document seen by Bloomberg, the plans include spending almost $1bn and boosting the output to 18GWh within 5 years – enough for approx. 160,000 Nissan Leaf EVs.
This is the second battery plant that Nissan and AESC have announced in recent months after they unveiled plans for their $1.4bn EV-manufacturing hub in the UK.
Nissan used to own AESC before selling a majority stake to Envision Group in 2018. Nissan still own 20% of AESC but are seeking to increase its stake or develop a strong alliance with Envision AESC.
Ford, Tesla, and VW seek to increase use of lithium-iron-phosphate batteries
Three major auto-manufacturers are seeking to reduce their exposure to high nickel and cobalt costs by utilising lithium-iron-phosphate (LFP) batteries as an alternative.
Elon Musk has announced Tesla’s intentions to initiate a long-term shift towards LFP technology for entry-level EVs and energy storage projects.
VW’s CEO, Herbert Diess, also committed to use LFP tech in the company’s cheaper vehicles.
The move is also motivated by intentions to reduce exposure to artisanal cobalt mining, especially in the DRC where child labour is used, for which vehicle and tech giants such as Microsoft and Apple have come under scrutiny.
Whilst lithium-ion batteries are set to cost $100/kWh by 2023, the older LFP technology will provide batteries at $80/kWh.
The move will be beneficial to companies looking to reduce their reliance on Chinese-dominated supplies of cobalt and graphite whilst posing problems to mining companies betting on increasing nickel demand.
Nissan CEO to push for recycling of lithium-ion batteries in EVs
Makoto Uchida, Nissan’s CEO, has told the FT of his company’s plans to further explore the reuse of its cars’ battery materials.
The company currently recycles its Nissan Leaf car batteries for storing renewable energy at convenience stores, railway crossings and factory infrastructure.
The carmaker formed a joint venture with 4R Energy in 2010 to explore potentials for repurposing batteries.
Following the arrest of Carlos Ghosn, the company’s former chair, Nissan has been focusing on overhauling its company structure with carbon neutrality a central component of the company’s future vision.
The company expects to electrify its entire new production line by early 2030s.
The news follows battery recycler Redwood Materials’ announcement of $700bn in funding as start-ups look to reduce the EV industry’s reliance on rare earths and lithium.
Company News
Arkle Resources* (LON:ARK) 0.85p, Mkt Cap £2.5m – Latest drilling results from the Mine River gold exploration project
Arkle Resources has released results from its 5th drillhole of the current programme on its Mine River gold exploration project in Cos Wicklow / Wexford, Ireland.
The latest hole (21-TB-09) is located 220m west along strike from the previous hole (21-TB-08) and Arkle Resources reports the following mineralised intercepts:
A 0.5m wide intersection averaging 0.16g/t gold from a depth of 10.8m; and
A 2.5m wide zone averaging 0.83g/t gold from 52.4m depth and including 0.5m averaging 2.83g/t gold from 53.9m depth; and
A single metre averaging 0.51g/t gold from 88.4m; and
A 0.5m wide intersection averaging 0.20g/t gold from 148.9m depth.
The company says that hole 21-TB-09 encountered “blue quartz veins and sulphide” as seen in other holes of the current programme and that “Samples from the sixth hole have been sent for analysis and drilling has now commenced on the seventh hole of the drill programme, which is located 100 metres eastwards of Hole 5.”.
Chairman, John Teeling, explained that “We continue to intercept more gold veins along strike at Tombreen. Although the bulk of the veins are low grade it proves the extension of them for hundreds of metres. This is now a substantial gold zone. The latest hole being drilled, Hole 7, is located 100m eastwards of Hole 5”.
Conclusion: The current programme is intersecting gold mineralisation along strike from the earlier drilling demonstrating both continuity and scale to the mineralised structures but has yet to identify a higher grade core of mineralisation which it can develop into an initial resource. We await further results as the drilling progresses.
*SP Angel are Nomad and broker to Arkle Resources
BHP (LON:BHP) 2376p, Mkt cap £135bn - BHP expects demand for nickel in battery demand to rise by 500%
BHP is looking to benefit from increasing demand and rising prices and premiums for nickel hydroxide for Li-ion batteries
Eddy Haegel of BHP’s Nickel West facility, announced at the Diggers and Dealers conference this week that the company expects demand for nickel-in-batteries to grow by 500% in this decade.
The company plans to add a concentrator at its Mt. Keith processing plant, expecting this to increase capacity by 50%.
Haegel announced plans to develop a roadway connecting its northern and southern Nickel West mining areas. He believes this will offer ‘a substantial exploration platform to extend the mine at depth’.
The company is also exploring development options for assets it purchased from Norilsk Nickel last year.
The developments in BHP’s attitude to the metal, which accounts for less than 1% of its earnings, mark a significant change from their previous plans to sell their WA nickel operations.
Haegel stated that BHP could ‘become a globally significant supplier to the battery sector’.
Cora Gold (LON:CORA) 16p, Mkt Cap £39m – Drilling update at Sanankoro
The Company release drilling results from Phase 2 programme at Selin focused on both infill and step out drilling.
Selected results include
49m @ 15.55 g/t Au including 8m @ 89.12 g/t Au from 99m in hole SC0484 (outside resource pit)
32m @ 7.83 g/t Au including 4m @ 53.86 g/t Au from 45m in hole SC0488 (within resource pit)
12m @ 6.37 g/t Au including 5m @ 14.17 g/t Au from 95m in hole SC0485 (on a margin of resource pit)
32m @ 2.35 g/t Au including 4m @ 10.18 g/t Au from 72m in hole SC0486 (within resource pit)
The Company reports to have intersected new mineral zone within existing pit shell.
Results are from the first ~2,500m of the planned ~12,800m Selin P2 programme.
Drilling recommenced at Selin in mid-June and will continue until programme completion later this month.
The team is planning to release an updated mineral resource after the end of the programme.
Conclusion: Drilling intersections at Selin continues to return high grade results as the team is progressing with its step out and infill drilling programme at Sanankoro ahead of the MRE update targeted for later this year.
Kodal Minerals* (LON:KOD) – 0.38p, Mkt cap £58m – Bougouni licence application advances to final stage of the approval process
Kodal Minerals reports that its application for mining licence approval for the Bougouni lithium project in Mali has been “forwarded from the Ministry of Mines, Energy and Water to the Secretary General's office for final review prior to presentation at the Conseil des Ministres”.
This step is described as the final stage of the approval process and “Kodal is informed that all is progressing as expected”.
Management are waiting on news from SinoHydro, which is part of PowerChina on the potential funding of the Bougouni lithium project.
Ganfeng’s recent $130m conditional deal with Firefinch on the Goulamina spodumene project next to Bougouni coupled with Piedmont’s similar US$102m deal with IronRidge on the Ewoyaa lithium spodumene project in Ghana indicate that battery materials processors are keen to secure new sources of hard-rock spodumene supply.
Spodumene prices rose further to US$810/t today in China vs US$800/t yesterday highlighting rising demand for hard-rock spodumene material.
Nielle gold project (Cote d’Ivoire): The company also takes the opportunity to outline the progress of its exploration programme at the Nielle gold project where widely spaced aircore drilling has confirmed “a 4.5km gold mineralised trend with extensions of up to 1.5km south and over 1km north”.
The company has now completed 5,084m of aircore drilling in 152holes at Nielle and in addition to confirming a 4.5km long zone of anomalous gold, has also identified “new parallel targets that were indicated in surface geochemical anomalism”.
Kodal also says that a review of historical exploration data “has identified further targets requiring reconnaissance drilling and this completed wide-spaced aircore drilling requires infill definition to target initial RC drilling”.
Planning of follow-up exploration, including reverse circulation and infill aircore drilling is underway and Kodal expects to resume drilling at Nielle when a rig becomes available in September “following the wet season in northern Côte d'Ivoire”.
CEO, Bernard Aylward, described “Our first gold exploration drilling campaign at the Nielle concession … [as]… very successful … [and said that] … our reconnaissance aircore drilling is demonstrating major strike extensions as well as additional parallel zones of mineralisation”.
He summed up by saying that “The Nielle prospect is at an early stage however the results received so far have given encouragement as to the possible resource potential here. Further exploration drilling will be undertaken later this year with the objective of delivering a maiden mineral resource estimate”.
Conclusion: News that the Bougouni mining licence application process is nearing a conclusion will be welcome to investors while the encouraging early stage exploration results from Nilelle are establishing the basis for future more detailed drilling and an initial mineral resources estimate.
*SP Angel acts as Financial Advisor and Broker to Kodal Minerals
Power Metal Resources* (LON:POW) 2.15p, Mkt cap £25m – Phase-1 work programme complete at Tati Project
Power Metal reports that it has completed the Phase I work programme on its two gold-nickel licences in the Tati Greenstone Belt in Botswana.
A total of 1,107 soil samples and 49 rock samples were collected across the five grid areas, with soil samples from grids 2-5 (727 samples) set to be analysed by portable x-ray fluoresence spectrometer. Samples from grid 1 (380 samples), as well as all rock samples have been submitted for lab assay.
Mapping completed throughout the programme identified several old workings, including historical trenches, mine shafts and adits across both prospecting licences.
Several areas were designated for immediate follow up based on mapped structural and geological observations, a Phase II programme including ground-based geophysics is being considered in advance of a Rotary Air Blast drilling programme planned for late summer 2021.
Paul Johnson, Chief Executive Officer of Power Metal commented: The due diligence work completed earlier this year by our exploration teams demonstrated multiple multi-kilometre arsenic, gold, and nickel anomalies, and we believe the results from our Phase I ground exploration programme will continue to demonstrate the size, scale and magnitude of the targets that exist within the licences.
We expect the results generated will allow us to plan for our Phase II Programme which will include geophysics, as well as Rotary Airblast drilling, which is planned for late summer 2021.
Vale (NYSE:VALE) US$0.11, Mkt cap US$58.8bn – Vale Nickel workers end two-month strike at Sudbury
Vale, the world’s largest producer of nickel, will start resuming operations at Sudbury in Canada after workers accepted a proposal to end a two-month strike.
The new contract preserves retiree health benefits for future hires as well as paying each worker a $3,500 signing bonus and $2,500 for effort during pandemic.
About 85% of union members voted in favour of the five-year contract offer, the union said by email.
Sudbury is one of the world’s few producers of nickel pellet, used to make alloys for the aerospace, electronics and nuclear industries.
Recent Interviews:
IGTV: Stock picks in the small-cap mining space:
Evolution of Chinese construction and implications for commodity demand: https://youtu.be/jB2nURL8uPw
VOX Markets: 10/06/21: https://audioboom.com/posts/7884446-john-meyer-talks-about-cornish-metals-empire-metals-anglo-american-ncondezi-energy-mkango-r
BBC: Catalytic converters https://www.bbc.co.uk/sounds/play/p09jl6c9
*SP Angel almost invariably acts as nomad or broker or nomad and broker to companies mentioned in the above videos and podcasts.
We speak more about these companies as we have a good understanding of their business and can talk with a greater degree of confidence. As ever, however, it should be noted that our views do not take into account the circumstances and needs of any particular investor or investor type. So enjoy the talks, but please do your own research, including other companies not mentioned by us but operating in the same areas, and get professional advice where appropriate.
No.1 in Copper: “The winner of the 2020 Fastmarkets Apex contest for copper was the team at SP Angel comprising John Meyer, Sergey Raevskiy and Simon Beardsmore, with an accuracy score of 93.8%”
No1. In Gold: “SP Angel’s trio took the top spot for the gold price prediction throughout the year, with an accuracy score of 97.59%”
The SP Angel team also ranked 1st in Palladium, 3rd in Tin and 5th in Silver in the fourth quarter of 2020
Analysts
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Simon Beardsmore – Simon.Beardsmore@spangel.co.uk – 0203 470 0484
Sergey Raevskiy –Sergey.Raevskiy@spangel.co.uk - 0203 470 0474
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Sales
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Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471
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*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)
+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.
Sources of commodity prices
Gold, Platinum, Palladium, Silver
BGNL (Bloomberg Generic Composite rate, London)
Gold ETFs, Steel
Bloomberg
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt
LME
Oil Brent
ICE
Natural Gas, Uranium, Iron Ore
NYMEX
Thermal Coal
Bloomberg OTC Composite
Coking Coal
SSY
RRE
Steelhome
Lithium Carbonate, Ferro Vanadium, Tungsten, Spodumene, Ferro-Manganese, Graphite
Asian Metal
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